12. An organization is attempting to apply concepts of minimum costs in its prev

Question

12. An organization is attempting to apply concepts of minimum costs in its preventive maintenance pro- gram. Currently, equipment requires major repairs every year at a cost of $10,000 for materials and $4,000 for labor. In addition, the lost production time of four days is valued at S1,000 per day. The firm is considering using a monthly maintenance program that has labor costs of $150 per mon material costs of $500 per month. The downtime cost on the monthly schedule would be reduced to one hour at $50 per hour. T estimates that by using this monthly maintenance th and

Explanation / Answer

Cost of annual overhauls = $ 10,000 + $ 4,000 + $ 1,000 X 4

Cost of annual overhauls = $ 18,000

Cost of revised maintenance system = $ 150 X 12 + $ 500 X 12 + $ 50 X 12

Cost of revised maintenance system = $ 8,400

The organization should use the revised maintenance system as it is cheaper compared to the annual overhaul .

The other considerations are any indirect costs incurred for maintenance .

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